Suppose there is a town that is spread along a road. It is a horizontal town, a town in the shape of a line.
The suppose there are two ice cream stores that are both trying to decide where in town they should locate themselves to maximize profit. Both ice cream store owners know that customers will buy from the closest ice cream vendor to their house, that distance is the only consideration.
Where will the ice cream vendors locate themselves?
It turns out, according to Harold Hotelling, that both businesses will locate themselves in the middle of town. If they are spread out in opposite ends of town, both will be able to gain more customers by moving toward the center, until both are located smack dab in the middle.
It’s counterintuitive, perhaps, but it’s a model of competition that can be used for various economic and political situations.
For instance, the Hotelling model of competition is often applied to political races, where instead of ice cream vendors trying to gain customers, it’s politicians trying to gain votes. Because of this tendency to the center, both candidates in a political race will tend toward the center in their political views. Those on the edges will very rarely pick up enough votes to be able to win.
That’s why in many presidential elections, after candidates are nominated by their parties, you see their rhetoric and views begin to shift more toward the center. That’s because they have to essentially sell twice to two different audiences, with a different “center” for each one.
First, the politicians have to appeal to the “center” of their own political party in order to gain the party nomination. After being nominated, the politician faces a different challenge: selling his or her message to the entire country as a whole. In order to gain enough votes to win, the candidate often has to moderate his or her message in order to gain a broader support.
In economics, the Hotelling model is also used to compare two products that are differentiated. The “distance” from each customer to each product isn’t necessarily a geographical distance, but is often used to represent the difference between the product and what the ideal product that the customer wants. The customer will tend toward the product that is closest to his or her ideal one.
That’s the Hotelling model in a nutshell. It continues to be used today in economics, political science and other fields.